A misrepresentation is an untrue statement of a material fact made by one party which affects the other party’s decision in corresponding to a contract. If the misrepresentation is identified, the contract can be declared void and depending on the situation, the unfavorably impacted party may seek damages.
Misrepresentation in contract law is especially important in business dealings where huge transactions occur with high frequency. Misrepresentations of the value and/or risk correlated with an agreement can cause enormous financial losses to businesses and individuals while increasing the risk of collaborative business ventures.
A representation is said to be such statement which generates the entry into a contract but is not a part of a term of the contract.
Misrepresentation is about giving of inaccurate information by one party (or their agent) to the other before the contract is made which induces them to make the contract. If a person makes a contract in reliance on misrepresentation and has to face loss as a result, they can revoke the contract or claim damages.
Types of Misrepresentation
There are three types of misrepresentation present in the contract:
Fraudulent misrepresentation will happen when a false representation is made and the party making the representation let say X knew it was false or was reckless as to whether it was correct or incorrect- the lack of an accurate belief in its truth will present it a fraudulent one. If A honestly believes the statement to be true it cannot be a fraudulent misrepresentation, negligence in creating a false statement will not result in fraud. However, if it can be shown that A suspected that the statement might be incorrect or wrong, but made no enquiries to check the position, that will be sufficient. It will not be mandatory to prove a dishonest motive.
Negligent misrepresentation under the Misrepresentation Act 1967 (MA 1967) befalls where a declaration is made by one contracting party to another negligently or without reasonable grounds for believing its truth. The test is an impersonal one.
There is no obligation to establish fraud. If the innocent party can prove the statement was false, it will be for the maker of the statement to establish that it rationally believed in the truth of the statement (that is, the representation).
A solution for negligent misrepresentation remain at common law, however, its use in contractual situations has been considerably lessened as a result of Section 2(1) of the MA 1967.
Misrepresentation made completely without fault can be described as an innocent misrepresentation.
If X is unable to show it had objective grounds to believe its declaration was true the misrepresentation will be fraudulent or negligent.
Remedies of Misrepresentation
As we know the contract made in misrepresentation is voidable which is not done intentionally by the party. So by keeping this in mind, the remedies for misrepresentation are:
Rescind: Rescind means to cancel. When the aggrieved party wants he can claim for cancellation of the contract and/or damages. Under contract law, rescission is defined as the unmaking of a contract between the parties. Rescission is the unwinding of a transaction. This is made to bring the parties, as far as possible, back to the position in which they were before they entered into a contract (the status quo ante).
Insist upon the performance: The aggrieved party can claim to the first party who have committed misrepresentation to get the object in the manner which was prior to the contract that they directly.
Limitations available to remedies
A condition can be included in a contract that limits the remedies that will be available wherever a party has the right to make a misrepresentation claim. For instance, such a clause could limit the remedies to those available for breach of contract- definitely excluding the right of the innocent party to revoke the contract.
Representation of state of mind
Representation initiates and induces a contract. It is the information by which a contracting party decides whether to continue with the contract. A representation is an express or implied statement that one party to the contract forms to the other before or at the point of the contract. It is entered with regard to past or existing fact. An illustration might be that a seller of some commodity represents that no notification of patent infringement had been received.
A representation initially cannot be a part of a contract and a claim for damages due to a misrepresentation ordinarily would not be allowed. Instead, a claim that a misrepresentation induced a contract might be pursued in fraud, either to revoke the contract or for damages. In some cases, a claim might be based on the tort of negligent misrepresentation.
Overall, by concluding the said factors we know that, administer a contract void or voidable based upon the specific circumstances of the case. If a contract is a void then it cannot be enforced by both of the parties, whereas if a contract is interpreted as voidable then although it is a valid contract it can be cancelled or revoked. Essentially, whilst a void contract cannot be performed, a voidable contract can depend upon either of the parties after they decide to cancel it. If there has been a misrepresentation or a mistake the contract may be declared void and therefore be abolished. If duress or undue influence has occurred, then the contract may be rendered voidable and thereby capable of being cancelled.